Clause 1. The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.
POWER TO TAX AND SPEND
Kinds of Taxes Permitted
By the terms of the Constitution, the power of Congress to levy taxes is subject to but one exception and two qualifications. Articles exported from any State may not be taxed at all. Direct taxes must be levied by the rule of apportionment and indirect taxes by the rule of uniformity. The Court has emphasized the sweeping character of this power by saying from time to time that it “reaches every subject,”537 that it is “exhaustive”538 or that it “embraces every conceivable power of taxation.”539 Despite these generalizations, the power has been at times substantially curtailed by judicial decision with respect to the subject matter of taxation, the manner in which taxes are imposed, and the objects for which they may be levied.
Decline of the Forbidden Subject Matter Test.
The Su- preme Court has restored to Congress the power to tax most of the subject matter which had previously been withdrawn from its reach by judicial decision. The holding of Evans v. Gore540 and Miles v. Graham541 that the inclusion of the salaries received by federal judges in measuring the liability for a nondiscriminatory income tax violated the constitutional mandate that the compensation of such judges should not be diminished during their continuance in office was repudiated in O’Malley v. Woodrough.542 The specific ruling of Collector v. Day543 that the salary of a state officer is immune to federal income taxation also has been overruled.544 But the principle underlying that decision—that Congress may not lay a tax that would impair the sovereignty of the states—is still recognized as retaining some vitality.545
Federal Taxation of State Interests.
In 1903 a succession tax upon a bequest to a municipality for public purposes was upheld on the ground that the tax was payable out of the estate before distribution to the legatee. Looking to form and not to substance, in disregard of the mandate of Brown v. Maryland,546 a closely divided Court declined to “regard it as a tax upon the municipality, though it might operate incidentally to reduce the bequest by the amount of the tax.”547 When South Carolina embarked upon the business of dispensing alcoholic beverages, its agents were held to be subject to the national internal revenue tax, the ground of the holding being that in 1787 such a business was not regarded as one of the ordinary functions of government.548
Another decision marking a clear departure from the logic of Collector v. Day was Flint v. Stone Tracy Co.,549 in which the Court sustained an act of Congress taxing the privilege of doing business as a corporation, the tax being measured by the income. The argument that the tax imposed an unconstitutional burden on the exercise by a state of its reserved power to create corporate franchises was rejected, partly because of the principle of national supremacy, and partly on the ground that the corporate franchises were private property. This case also qualified Pollock v. Farmers’ Loan & Trust Co. to the extent that it allowed interest on state bonds to be included in measuring the tax on the corporation.
Subsequent cases have sustained an estate tax on the net estate of a decedent, including state bonds,550 excise taxes on the transportation of merchandise in performance of a contract to sell and deliver it to a county,551 on the importation of scientific apparatus by a state university,552 on admissions to athletic contests sponsored by a state institution, the net proceeds of which were used to further its educational program,553 and on admissions to recreational facilities operated on a nonprofit basis by a municipal corporation.554 Income derived by independent engineering contractors from the performance of state functions,555 the compensation of trustees appointed to manage a street railway taken over and operated by a state,556 profits derived from the sale of state bonds,557 or from oil produced by lessees of state lands,558 have all been held to be subject to federal taxation despite a possible economic burden on the state.
In finally overruling Pollock, the Court stated that Pollock had “merely represented one application of the more general rule that neither the federal nor the state governments could tax income an individual directly derived from any contract with another government.”559 That rule, the Court observed, had already been rejected in numerous decisions involving intergovernmental immunity. “We see no constitutional reason for treating persons who receive interest on government bonds differently than persons who receive income from other types of contracts with the government, and no tenable rationale for distinguishing the costs imposed on States by a tax on state bond interest from the costs imposed by a tax on the income from any other state contract.”560
Scope of State Immunity From Federal Taxation.
Although there have been sharp differences of opinion among members of the Supreme Court in cases dealing with the tax immunity of state functions and instrumentalities, the Court has stated that “all agree that not all of the former immunity is gone.”561 Twice, the Court has made an effort to express its new point of view in a statement of general principles by which the right to such immunity shall be determined. However, the failure to muster a majority to concur with any single opinion in the latter case leaves the question very much in doubt. In Helvering v. Gerhardt,562 where, without overruling Collector v. Day, it narrowed the immunity of salaries of state officers from federal income taxation, the Court announced “two guiding principles of limitation for holding the tax immunity of state instrumentalities to its proper function. The one, dependent upon the nature of the function being performed by the state or in its behalf, excludes from the immunity activities thought not to be essential to the preservation of state governments even though the tax be collected from the state treasury. . . . The other principle, exemplified by those cases where the tax laid upon individuals affects the state only as the burden is passed on to it by the taxpayer, forbids recognition of the immunity when the burden on the state is so speculative and uncertain that if allowed it would restrict the federal taxing power without affording any corresponding tangible protection to the state government; even though the function be thought important enough to demand immunity from a tax upon the state itself, it is not necessarily protected from a tax which well may be substantially or entirely absorbed by private persons.”563
The second attempt to formulate a general doctrine was made in New York v. United States,564 where, on review of a judgment affirming the right of the United States to tax the sale of mineral waters taken from property owned and operated by the State of New York, the Court reconsidered the right of Congress to tax business enterprises carried on by the states. Justice Frankfurter, speaking for himself and Justice Rutledge, made the question of discrimination vel non against state activities the test of the validity of such a tax. They found “no restriction upon Congress to include the States in levying a tax exacted equally from private persons upon the same subject matter.”565 In a concurring opinion in which Justices Reed, Murphy, and Burton joined, Chief Justice Stone rejected the criterion of discrimination. He repeated what he had said in an earlier case to the effect that “the limitation upon the taxing power of each, so far as it affects the other, must receive a practical construction which permits both to function with the minimum of interference each with the other; and that limitation cannot be so varied or extended as seriously to impair either the taxing power of the government imposing the tax . . . or the appropriate exercise of the functions of the government affected by it.”566 Justices Douglas and Black dissented in an opinion written by the former on the ground that the decision disregarded the Tenth Amendment, placed “the sovereign States on the same plane as private citizens,” and made them “pay the Federal Government for the privilege of exercising powers of sovereignty guaranteed them by the Constitution.”567 In a later case dealing with state immunity the Court sustained the tax on the second ground mentioned in Helvering v. Gerhardt—that the burden of the tax was borne by private persons—and did not consider whether the function was one which the Federal Government might have taxed if the municipality had borne the burden of the exaction.568
Articulation of the current approach may be found in South Carolina v. Baker.569 The rules are “essentially the same” for federal immunity from state taxation and for state immunity from federal taxation, except that some state activities may be subject to direct federal taxation, while states may “never” tax the United States directly. Either government may tax private parties doing business with the other government, “even though the financial burden falls on the [other government], as long as the tax does not discriminate against the [other government] or those with which it deals.”570 Thus, “the issue whether a nondiscriminatory federal tax might nonetheless violate state tax immunity does not even arise unless the Federal Government seeks to collect the tax directly from a State.”571
Whether a tax is to be appor- tioned among the states according to the census taken pursuant to Article I, § 2, or imposed uniformly throughout the United States depends upon its classification as direct or indirect.572 The rule of uniformity for indirect taxes is easy to obey. It requires only that the subject matter of a levy be taxed at the same rate wherever found in the United States; or, as it is sometimes phrased, the uniformity required is “geographical,” not “intrinsic.”573 Even the geographical limitation is a loose one, at least if one follows United States v. Ptasynski,574 in which the Court upheld an exemption from a crude-oil windfall-profits tax of “Alaskan oil,” defined geographically to include oil produced in Alaska (or elsewhere) north of the Arctic Circle. What is prohibited, the Court said, is favoritism to particular states in the absence of valid bases of classification. Because Congress could have achieved the same result, allowing for severe climactic difficulties, through a classification tailored to the “disproportionate costs and difficulties . . . associated with extracting oil from this region,”575 the fact that Congress described the exemption in geographic terms did not condemn the provision.
The clause accordingly places no obstacle in the way of legislative classification for the purpose of taxation, nor in the way of what is called progressive taxation.576 A taxing statute does not fail of the prescribed uniformity because its operation and incidence may be affected by differences in state laws.577 A federal estate tax law that permitted deduction for a like tax paid to a state was not rendered invalid by the fact that one state levied no such tax.578 The term “United States” in this clause refers only to the states of the Union, the District of Columbia, and incorporated territories. Congress is not bound by the rule of uniformity in framing tax measures for unincorporated territories.579 Indeed, in Binns v. United States,580 the Court sustained license taxes imposed by Congress but applicable only in Alaska, where the proceeds, although paid into the general fund of the Treasury, did not in fact equal the total cost of maintaining the territorial government.
PURPOSES OF TAXATION
Regulation by Taxation
Congress has broad discretion in methods of taxation, and may, under the Necessary and Proper Clause, regulate business within a state in order to tax it more effectively. For instance, the Court has sustained regulations regarding the packaging of taxed articles such as tobacco581 and oleomargarine,582 which were ostensibly designed to prevent fraud in the collection of the tax. It has also upheld measures taxing drugs583 and firearms,584 which prescribed rigorous restrictions under which such articles could be sold or transferred, and imposed heavy penalties upon persons dealing with them in any other way. These regulations were sustained as conducive to the efficient collection of the tax though they clearly transcended in some respects this ground of justification.585
Even where a tax is coupled with regulations that have no possible relation to the efficient collection of the tax, and no other purpose appears on the face of the statute, the Court has refused to inquire into the motives of the lawmakers and has sustained the tax despite its prohibitive proportions.586 “It is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. . . . The principle applies even though the revenue obtained is obviously negligible . . . or the revenue purpose of the tax may be secondary. . . . Nor does a tax statute necessarily fall because it touches on activities which Congress might not otherwise regulate. As was pointed out in Magnano Co. v. Hamilton, 292 U.S. 40, 47 (1934): ‘From the beginning of our government, the courts have sustained taxes although imposed with the collateral intent of effecting ulterior ends which, considered apart, were beyond the constitutional power of the lawmakers to realize by legislation directly addressed to their accomplishment.’ ”587
In some cases, however, the structure of a taxation scheme is such as to suggest that the Congress actually intends to regulate under a separate constitutional authority. As long as such separate authority is available to Congress, the imposition of a tax as a penalty for such regulation is valid.588 On the other hand, where Congress had levied a heavy tax upon liquor dealers who operated in violation of state law, the Court held that this tax was unenforceable after the repeal of the Eighteenth Amendment, because the National Government had no power to impose an additional penalty for infractions of state law.589
Discerning whether Congress, in passing a regulation that purports to be under the taxing authority, intends to exercise a separate constitutional authority, requires evaluation of a number of factors.590 Under the Child Labor Tax Case,591 decided in 1922, the Court, which had previously rejected a federal prohibition of child labor laws as being outside of the Commerce Clause,592 also rejected a tax on companies using such labor. First, the Court noted that the law in question set forth a specific and detailed regulatory scheme—including the ages, industry, and number of hours allowed— establishing when employment of underage youth would incur taxation. Second, the taxation in question functioned as a penalty, in that it was set at one-tenth of net income per year, regardless of the nature or degree of the infraction. Third, the tax had a scienter requirement, so that the employer had to know that the child was below a specified age in order to incur taxation. Fourth, the statute made the businesses subject to inspection by officers of the Secretary of Labor, positions not traditionally charged with the enforcement and collection of taxes.
More recently, in National Federation of Independent Business (NFIB) v. Sebelius,593 the Court upheld as an exercise of the taxing authority a requirement under the Patient Protection and Affordable Care Act (ACA)594 that mandates certain individuals to maintain a minimum level of health insurance. Failure to purchase health insurance may subject a person to a monetary penalty, administered through the tax code. Chief Justice Roberts, in a majority holding,595 used a functional approach in evaluating the authority for the requirement, so that the use of the term “penalty” in the ACA596 to describe the enforcement mechanism for the individual mandate was found not to be determinative. The Court also found that the latter three factors identified in the Child Labor Tax Case (penal intent, scienter, enforcement by regulatory agency) were not present with respect to the individual mandate. Unlike the child labor taxation scheme, the tax level under the ACA is established based on traditional tax variables such as taxable income, number of dependents and joint filing status; there is no requirement of a knowing violation; and the tax is collected by the Internal Revenue Service.
The majority, however, did not appear to have addressed the first Child Labor Case factor: whether the ACA set forth a specific and detailed course of conduct and imposed an exaction on those who transgress its standard. The Court did note that the law did not bear characteristics of a regulatory penalty, as the cost of the tax was far outweighed by the cost of obtaining health insurance, making the payment of the tax a reasonable financial decision.597 Still, the majority’s discussion suggests that, for constitutional purposes, the prominence of regulatory motivations for tax provisions may become less important than the nature of the exactions imposed and the manner in which they are administered.
In those areas where activities are subject to both taxation and regulation, the taxing authority is not limited from reaching activities otherwise prohibited. For instance, Congress may tax an activity, such as the business of accepting wagers,598 regardless of whether it is permitted or prohibited by the laws of the United States599 or by those of a state.600 However, Congress’s authority to regulate using the taxing power “reaches only existing subjects.”601 Thus, so-called federal “licenses,” so far as they relate to topics outside Congress’s constitutional authority, merely express, “the purpose of the government not to interfere . . . with the trade nominally licensed, if the required taxes are paid.” In those instance, whether the “licensed” trade shall be permitted at all is a question that remains a decision by the state.602
Promotion of Business: Protective Tariff
The earliest examples of taxes levied with a view to promoting desired economic objectives in addition to raising revenue were, of course, import duties. The second statute adopted by the first Congress was a tariff act reciting that “it is necessary for the support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufactures, that duties be laid on goods, wares and merchandise imported.”603 After being debated for nearly a century and a half, the constitutionality of protective tariffs was finally settled by the Supreme Court’s unanimous decision in J. W. Hampton, Jr. & Co. v. United States, which rejected a contention “that the only power of Congress in the levying of customs duties is to create revenue, and that it is unconstitutional to frame the customs duties with any other view than that of revenue raising.”604
Chief Justice Taft, writing for the Court in Hampton, observed that the first Congress in 1789 had enacted a protective tariff. “In this first Congress sat many members of the Constitutional Convention of 1787. This Court has repeatedly laid down the principle that a contemporaneous legislative exposition of the Constitution when the founders of our Government and framers of our Constitution were actively participating in public affairs, long acquiesced in, fixes the construction to be given its provisions. . . . The enactment and enforcement of a number of customs revenue laws drawn with a motive of maintaining a system of protection, since the revenue law of 1789, are matters of history. . . . Whatever we may think of the wisdom of a protection policy, we cannot hold it unconstitutional. So long as the motive of Congress and the effect of its legislative action are to secure revenue for the benefit of the general government, the existence of other motives in the selection of the subjects of taxes cannot invalidate Congressional action.”605
SPENDING FOR THE GENERAL WELFARE
Scope of the Power
The grant of power to “provide . . . for the general welfare” raises a two-fold question: how may Congress provide for “the general welfare” and what is “the general welfare” that it is authorized to promote? The first half of this question was answered by Thomas Jefferson in his opinion on the Bank as follows: “[T]he laying of taxes is the power, and the general welfare the purpose for which the power is to be exercised. They [Congress] are not to lay taxes ad libitum for any purpose they please; but only to pay the debts or provide for the welfare of the Union. In like manner, they are not to do anything they please to provide for the general welfare, but only to lay taxes for that purpose.”606 The clause, in short, is not an independent grant of power, but a qualification of the taxing power. Although a broader view has been occasionally asserted,607 Congress has not acted upon it and the Court has had no occasion to adjudicate the point.
With respect to the meaning of “the general welfare” the pages of The Federalist itself disclose a sharp divergence of views between its two principal authors. Hamilton adopted the literal, broad meaning of the clause;608 Madison contended that the powers of taxation and appropriation of the proposed government should be regarded as merely instrumental to its remaining powers; in other words, as little more than a power of self-support.609 From early times, Congress has acted upon Hamilton’s interpretation. Appropriations for subsidies610 and for an ever-increasing variety of “internal improvements”611 constructed by the Federal Government, had their beginnings in the administrations of Washington and Jefferson.612 Since 1914, federal grants-in-aid, which are sums of money apportioned among the states for particular uses, often conditioned upon the duplication of the sums by the recipient state, and upon observance of stipulated restrictions as to their use, have become commonplace.
The scope of the national spending power came before the Supreme Court at least five times prior to 1936, but the Court disposed of four of the suits without construing the “general welfare” clause. In the Pacific Railway Cases613 and Smith v. Kansas City Title & Trust Co.,614 it affirmed the power of Congress to construct internal improvements, and to charter and purchase the capital stock of federal land banks, by reference to its powers over commerce, post roads, and fiscal operations, and to its war powers. Decisions on the merits were withheld in two other cases, Massachusetts v. Mellon and Frothingham v. Mellon,615 on the ground that neither a state nor an individual citizen is entitled to a remedy in the courts against an alleged unconstitutional appropriation of national funds. In United States v. Gettysburg Electric Ry.,616 however, the Court invoked “the great power of taxation to be exercised for the common defence and general welfare”617 to sustain the right of the Federal Government to acquire land within a state for use as a national park.
Finally, in United States v. Butler,618 the Court gave its unqualified endorsement to Hamilton’s views on the taxing power. Justice Roberts wrote for the Court: “Since the foundation of the Nation sharp differences of opinion have persisted as to the true interpretation of the phrase. Madison asserted it amounted to no more than a reference to the other powers enumerated in the subsequent clauses of the same section; that, as the United States is a government of limited and enumerated powers, the grant of power to tax and spend for the general national welfare must be confined to the enumerated legislative fields committed to the Congress. In this view the phrase is mere tautology, for taxation and appropriation are or may be necessary incidents of the exercise of any of the enumerated legislative powers. Hamilton, on the other hand, maintained the clause confers a power separate and distinct from those later enumerated, is not restricted in meaning by the grant of them, and Congress consequently has a substantive power to tax and to appropriate, limited only by the requirement that it shall be exercised to provide for the general welfare of the United States. Each contention has had the support of those whose views are entitled to weight. This court has noticed the question, but has never found it necessary to decide which is the true construction. Mr. Justice Story, in his Commentaries, espouses the Hamiltonian position. We shall not review the writings of public men and commentators or discuss the legislative practice. Study of all these leads us to conclude that the reading advocated by Mr. Justice Story is the correct one. While, therefore, the power to tax is not unlimited, its confines are set in the clause which confers it, and not in those of § 8 which bestow and define the legislative powers of the Congress. It results that the power of Congress to authorize expenditure of public moneys for public purposes is not limited by the direct grants of legislative power found in the Constitution.”619
By and large, it is for Congress to determine what constitutes the “general welfare.” The Court accords great deference to Congress’s decision that a spending program advances the general welfare,620 and has even questioned whether the restriction is judicially enforceable.621 Dispute, such as it is, turns on the conditioning of funds.
As with its other powers, Congress may enact legislation “necessary and proper” to effectuate its purposes in taxing and spending. In upholding a law making it a crime to bribe state and local officials who administer programs that receive federal funds, the Court declared that Congress has authority “to see to it that taxpayer dollars . . . are in fact spent for the general welfare, and not frittered away in graft or on projects undermined when funds are siphoned off or corrupt public officers are derelict about demanding value for dollars.”622 Congress’s failure to require proof of a direct connection between the bribery and the federal funds was permissible, the Court concluded, because “corruption does not have to be that limited to affect the federal interest. Money is fungible, bribed officials are untrustworthy stewards of federal funds, and corrupt contractors do not deliver dollar-for-dollar value.”623
Social Security Act Cases.
Although the Court in Butler held that the spending power is not limited by the specific grants of power contained in Article I, § 8, the Court found, nevertheless, that the spending power was qualified by the Tenth Amendment, and on this ground ruled that Congress could not use moneys raised by taxation to “purchase compliance” with regulations “of matters of state concern with respect to which Congress has no authority to interfere.”624 Within little more than a year this decision was narrowed by Steward Machine Co. v. Davis,625 which sustained the tax imposed on employers to provide unemployment benefits, and the credit allowed for similar taxes paid to a state. To the argument that the tax and credit in combination were “weapons of coercion, destroying or impairing the autonomy of the states,” the Court replied that relief of unemployment was a legitimate object of federal expenditure under the “general welfare” clause, that the Social Security Act represented a legitimate attempt to solve the problem by the cooperation of state and Federal Governments, and that the credit allowed for state taxes bore a reasonable relation “to the fiscal need subserved by the tax in its normal operation,”626 because state unemployment compensation payments would relieve the burden for direct relief borne by the national treasury. The Court reserved judgment as to the validity of a tax “if it is laid upon the condition that a state may escape its operation through the adoption of a statute unrelated in subject matter to activities fairly within the scope of national policy and power.”627
It was not until 1947 that the right of Congress to impose conditions upon grants-in-aid over the objection of a state was squarely presented.628 The Court upheld Congress’s power to do so in Oklahoma v. Civil Service Commission.629 The state objected to the enforcement of a provision of the Hatch Act that reduced its allotment of federal highway funds because of its failure to remove from office a member of the State Highway Commission found to have taken an active part in party politics while in office. The Court denied relief on the ground that, “[w]hile the United States is not concerned with, and has no power to regulate local political activities as such of state officials, it does have power to fix the terms upon which its money allotments to states shall be disbursed. . . . The end sought by Congress through the Hatch Act is better public service by requiring those who administer funds for national needs to abstain from active political partisanship. So even though the action taken by Congress does have effect upon certain activities within the state, it has never been thought that such effect made the federal act invalid.”630
The general principle is firmly established. “Congress has frequently employed the Spending Power to further broad policy objectives by conditioning receipt of federal moneys upon compliance by the recipient with federal statutory and administrative directives. This Court has repeatedly upheld against constitutional challenge the use of this technique to induce governments and private parties to cooperate voluntarily with federal policy.”631
The Court has set forth several standards purporting to channel Congress’s discretion in attaching grant conditions.632 To date only one statute, discussed below, has been struck down as violating these standards, although several statutes have been interpreted so as to conform to the guiding principles. First, the conditions, like the spending itself, must advance the general welfare, but the determination of what constitutes the general welfare rests largely if not wholly with Congress.633 Second, because a grant is “much in the nature of a contract” offer that the states may accept or reject,634 Congress must set out the conditions unambiguously, so that the states may make an informed decision.635 Third, the Court continues to state that the conditions must be related to the federal interest for which the funds are expended,636 but it has never found a spending condition deficient under this part of the test.637 Fourth, the power to condition funds may not be used to induce the states to engage in activities that would themselves be unconstitutional.638 Fifth, the Court has suggested that in some circumstances the financial inducement offered by Congress might be so coercive as to pass the point at which “pressure turns into compulsion.”639 Certain federalism restraints on other federal powers seem not to be relevant to spending conditions.640
In 2010, Congress passed the Patient Protection and Affordable Care Act (ACA),641 which established a comprehensive health care system for the United States. As part of this new system, the Act expanded which persons were eligible for Medicaid, which is financed jointly by the federal and state governments. Failure of a state to implement such expansion could, in theory, have resulted in the withholding of all Medicaid reimbursements, including payments for persons previously covered by the Medicaid program. In National Federation of Independent Business (NFIB) v. Sebelius,642 seven Justices (in two separate opinions) held that the requirement that states either comply with the requirements of the Medicaid expansion under the ACA or lose all Medicaid funds violated the Tenth Amendment.643 The Court held, however, that withholding of just the funds associated with that expansion raised no significant constitutional concerns, essentially making the Medicaid expansion voluntary.
Chief Justice Roberts’ controlling opinion644 in NFIB held that the ACA Medicaid expansion created a “new” and “independent” program.645 As Congress’s power to direct state activities under the Spending Clause is in the nature of a contract, Justice Robert’s opinion suggests that the only changes that could be made to Medicaid would be those that could be reasonably anticipated by the states as they entered the original program, when only four categories of persons in financial need were covered: the disabled, the blind, the elderly, and needy families with dependent children. The Medicaid expansion arguably changed the nature of the program by requiring recipient states, as part of a universal health care system, to meet the health care needs of the entire nonelderly population with income below 133% of the poverty level.646 Thus, the Medicaid expansion “accomplishe[d] a shift in kind, not merely degree.”647
Once Justice Roberts established that the Medicaid expansion was a “new” and “independent” program, he then turned to whether withdrawal of existing Medicaid funds for failure to implement the expansion was coercive. Justice Roberts noted that the threatened loss of Medicaid funds was “over 10 percent of most State’s total revenue,” which he characterized as a form of “economic dragooning” which put a “gun to the head” of the states.648 Justice Roberts contrasted this amount with the amount of federal transportation funds threatened to be withheld from South Dakota in Dole, which he characterized as less than half of one percent of South Dakota’s budget. How courts are to consider grant withdrawals between 10 percent and one-half of 1 percent, however, is not addressed by the Roberts’ opinion, and Justice Roberts declined to speculate where such a line would be drawn.
If a state accepts federal funds on conditions and then fails to follow the requirements, the usual remedy is federal administrative action to terminate the funding and to recoup funds the state has already received.649 Although the Court has allowed beneficiaries of conditional grant programs to sue to compel states to comply with the federal conditions,650 more recently the Court has required that any such susceptibility to suit be clearly spelled out so that states will be informed of potential consequences of accepting aid. Finally, it should be noted that Congress has enacted a range of laws forbidding discrimination in federal assistance programs,651 and some of these laws are enforceable against the states.652
The appropriation of the proceeds of a tax to a specific use does not affect the validity of the exaction, if the general welfare is advanced and no other constitutional provision is violated. Thus a processing tax on coconut oil was sustained despite the fact that the tax collected upon oil of Philippine production was segregated and paid into the Philippine Treasury.653 In Helvering v. Davis,654 the excise tax on employers—the proceeds of which were not earmarked in any way, although intended to provide funds for payments to retired workers—was upheld under the “general welfare” clause, the Tenth Amendment’s being found inapplicable.
Debts of the United States.
The power to pay the debts of the United States is broad enough to include claims of citizens arising on obligations of right and justice.655 The Court sustained an act of Congress which set apart for the use of the Philippine Islands, the revenue from a processing tax on coconut oil of Philippine production, as being in pursuance of a moral obligation to protect and promote the welfare of the people of the Islands.656 Curiously enough, this power was first invoked to assist the United States to collect a debt due to it. In United States v. Fisher,657 the Supreme Court sustained a statute that gave the Federal Government priority in the distribution of the estates of its insolvent debtors. The debtor in that case was the endorser of a foreign bill of exchange that apparently had been purchased by the United States. Invoking the Necessary and Proper Clause, Chief Justice Marshall deduced the power to collect a debt from the power to pay its obligations by the following reasoning: “The government is to pay the debt of the Union, and must be authorized to use the means which appear to itself most eligible to effect that object. It has, consequently, a right to make remittances by bills or otherwise, and to take those precautions which will render the transaction safe.”658
- License Tax Cases, 72 U.S. (5 Wall.) 462, 471 (1867).
- Brushaber v. Union Pac. R.R., 240 U.S. 1 (1916).
- 240 U.S. at 12.
- 253 U.S. 245 (1920).
- 268 U.S. 501 (1925).
- 307 U.S. 277 (1939).
- 78 U.S. (11 Wall.) 113 (1871).
- Graves v. New York ex rel. O’Keefe, 306 U.S. 466 (1939). Collector v. Day was decided in 1871 while the country was still in the throes of Reconstruction. As noted by Chief Justice Stone in a footnote to his opinion in Helvering v. Gerhardt, 304 U.S. 405, 414 n.4 (1938), the Court had not determined how far the Civil War Amendments had broadened the federal power at the expense of the states, but the fact that the taxing power had recently been used with destructive effect upon notes issued by the state banks, Veazie Bank v. Fenno, 75 U.S. (8 Wall.) 533 (1869), suggested the possibility of similar attacks upon the existence of the states themselves. Two years later, the Court took the logical step of holding that the federal income tax could not be imposed on income received by a municipal corporation from its investments. United States v. Railroad Co., 84 U.S. (17 Wall.) 322 (1873). A far-reaching extension of private immunity was granted in Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429 (1895), where interest received by a private investor on state or municipal bonds was held to be exempt from federal taxation. (Though relegated to virtual desuetude, Pollock was not expressly overruled until South Carolina v. Baker, 485 U.S. 505 (1988)). As the apprehension of this era subsided, the doctrine of these cases was pushed into the background. It never received the same wide application as did McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819), in curbing the power of the states to tax operations or instrumentalities of the Federal Government. Only once since the turn of the century has the national taxing power been further narrowed in the name of dual federalism. In 1931 the Court held that a federal excise tax was inapplicable to the manufacture and sale to a municipal corporation of equipment for its police force. Indian Motorcycle v. United States, 283 U.S. 570 (1931). Justices Stone and Brandeis dissented from this decision, and it is doubtful whether it would be followed today. Cf. Massachusetts v. United States, 435 U.S. 444 (1978).
- At least, if the various opinions in New York v. United States, 326 U.S. 572 (1946), retain force, and they may in view of (a later) New York v. United States, 505 U.S. 144 (1992), a Commerce Clause case rather than a tax case.
- 25 U.S. (12 Wheat.) 419, 444 (1827).
- Snyder v. Bettman, 190 U.S. 249, 254 (1903).
- South Carolina v. United States, 199 U.S. 437 (1905). See also Ohio v. Helvering, 292 U.S. 360 (1934).
- 220 U.S. 107 (1911).
- Greiner v. Lewellyn, 258 U.S. 384 (1922).
- Wheeler Lumber Co. v. United States, 281 U.S. 572 (1930).
- Board of Trustees v. United States, 289 U.S. 48 (1933).
- Allen v. Regents, 304 U.S. 439 (1938).
- Wilmette Park Dist. v. Campbell, 338 U.S. 411 (1949).
- Metcalf & Eddy v. Mitchell, 269 U.S. 514 (1926).
- Helvering v. Powers, 293 U.S. 214 (1934).
- Willcuts v. Bunn, 282 U.S. 216 (1931).
- Helvering v. Producers Corp., 303 U.S. 376 (1938), overruling Burnet v. Coronado Oil & Gas Co., 285 U.S. 393 (1932).
- South Carolina v. Baker, 485 U.S. 505, 517 (1988).
- 485 U.S. at 524–25.
- New York v. United States, 326 U.S. 572, 584 (1946) (concurring opinion of Justice Rutledge).
- 304 U.S. 405 (1938).
- 304 U.S. at 419–20.
- 326 U.S. 572 (1946).
- 326 U.S. at 584.
- 326 U.S. at 589–90.
- 326 U.S. at 596.
- Wilmette Park Dist. v. Campbell, 338 U.S. 411 (1949). Cf. Massachusetts v. United States, 435 U.S. 444 (1978).
- 485 U.S. 505 (1988).
- 485 U.S. at 523.
- 485 U.S. at 524 n.14.
- See also Article I, § 9, cl. 4.
- LaBelle Iron Works v. United States, 256 U.S. 377 (1921); Brushaber v. Union Pac. R.R. Co., 240 U.S. 1 (1916); Head Money Cases, 112 U.S. 580 (1884).
- 462 U.S. 74 (1983).
- 462 U.S. at 85.
- Knowlton v. Moore, 178 U.S. 41 (1900).
- Fernandez v. Wiener, 326 U.S. 340 (1945); Riggs v. Del Drago, 317 U.S. 95 (1942); Phillips v. Commissioner, 283 U.S. 589 (1931); Poe v. Seaborn, 282 U.S. 101, 117 (1930).
- Florida v. Mellon, 273 U.S. 12 (1927).
- Downes v. Bidwell, 182 U.S. 244 (1901).
- 194 U.S. 486 (1904). The Court recognized that Alaska was an incorporated territory but took the position that the situation in substance was the same as if the taxes had been directly imposed by a territorial legislature for the support of the local government.
- Felsenheld v. United States, 186 U.S. 126 (1902).
- In re Kollock, 165 U.S. 526 (1897).
- United States v. Doremus, 249 U.S. 86 (1919). Cf. Nigro v. United States, 276 U.S. 332 (1928).
- Sonzinsky v. United States, 300 U.S. 506 (1937).
- Without casting doubt on the ability of Congress to regulate or punish through its taxing power, the Court has overruled Kahriger, Lewis, Doremus, Sonzinsky, and similar cases on the ground that the statutory scheme compelled self-incrimination through registration. Marchetti v. United States, 390 U.S. 39 (1968); Grosso v. United States, 390 U.S. 62 (1968); Haynes v. United States, 390 U.S. 85 (1968); Leary v. United States, 395 U.S. 6 (1969).
- McCray v. United States, 195 U.S. 27 (1904).
- United States v. Sanchez, 340 U.S. 42, 45 (1950). See also Sonzinsky v. United States, 300 U.S. 506, 513–14 (1937).
- Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 393 (1940). See also Head Money Cases, 112 U.S. 580, 596 (1884).
- United States v. Constantine, 296 U.S. 287 (1935).
- Hill v. Wallace, 259 U.S. 44 (1922); Helwig v. United States, 188 U.S. 605 (1903).
- Bailey v. Drexel Furniture Co. (Child Labor Tax Case), 259 U.S. 20 (1922).
- Hammer v. Dagenhart, 247 U.S. 251 (1918).
- 567 U.S. ___, No. 11–393, slip op. (2012).
- Pub. L. 111–148, as amended.
- For this portion of the opinion, Justice Roberts was joined by Justices Ginsburg, Breyer, Sotomayor and Kagan.
- 26 U.S.C. §§ 5000A(c), (g)(1).
- 567 U.S. ___, No. 11–393, slip op. at 35–36 (2012).
- United States v. Kahriger, 345 U.S. 22 (1953). Dissenting, Justice Frankfurter maintained that this was not a bona fide tax, but was essentially an effort to check, if not stamp out, professional gambling, an activity left to the responsibility of the States. Justices Jackson and Douglas noted partial agreement with this conclusion. See also Lewis v. United States, 348 U.S. 419 (1955).
- United States v. Yuginovich, 256 U.S. 450 (1921).
- United States v. Constantine, 296 U.S. 287, 293 (1935).
- License Tax Cases, 72 U.S. (5 Wall.) 462, 471 (1867).
- License Tax Cases, 72 U.S. at 471 (1867).
- 1 Stat. 24 (1789).
- 276 U.S. 394, 411 (1928).
- 276 U.S. at 412.
- 3 WRITINGS OF THOMAS JEFFERSON 147–149 (Library Edition, 1904).
- See W. CROSSKEY, POLITICS AND THE CONSTITUTION IN THE HISTORY OF THE UNITED STATES (1953).
- THE FEDERALIST, Nos. 30 and 34 (J. Cooke ed. 1961) 187–193, 209–215.
- Id. at No. 41, 268–78.
- 1 Stat. 229 (1792).
- 2 Stat. 357 (1806).
- In an advisory opinion, which it rendered for President Monroe at his request on the power of Congress to appropriate funds for public improvements, the Court answered that such appropriations might be properly made under the war and postal powers. See Albertsworth, Advisory Functions in the Supreme Court, 23 GEO. L. J. 643, 644–647 (1935). Monroe himself ultimately adopted the broadest view of the spending power, from which, however, he carefully excluded any element of regulatory or police power. See his Views of the President of the United States on the Subject of Internal Improvements, of May 4, 1822, 2 MESSAGES AND PAPERS OF THE PRESIDENTS 713–752 (Richardson ed., 1906).
- California v. Pacific R.R., 127 U.S. 1 (188).
- 255 U.S. 180 (1921).
- 262 U.S. 447 (1923). See also Alabama Power Co. v. Ickes, 302 U.S. 464 (1938). These cases were limited by Flast v. Cohen, 392 U.S. 83 (1968).
- 160 U.S. 668 (1896).
- 160 U.S. at 681.
- 297 U.S. 1 (1936). See also Cleveland v. United States, 323 U.S. 329 (1945).
- United States v. Butler, 297 U.S. 1, 65–66 (1936). So settled had the issue become that 1970s attacks on federal grants-in-aid omitted any challenge on the broad level and relied on specific prohibitions, i.e., the religion clauses of the First Amendment. Flast v. Cohen, 392 U.S. 83 (1968); Tilton v. Richardson, 403 U.S. 672 (1971).
- Id. at 207 (citing Helvering v. Davis, 301 U.S. 619, 640, 645 (1937)).
- Buckley v. Valeo, 424 U.S. 1, 90–91 (1976); South Dakota v. Dole, 483 U.S. 203, 207 n.2 (1987).
- Sabri v. United States, 541 U.S. 600, 605 (2004).
- 541 U.S. at 606.
- United States v. Butler, 297 U.S. 1, 70 (1936). Justice Stone, speaking for himself and two other Justices, dissented on the ground that Congress was entitled when spending the national revenues for the general welfare to see to it that the country got its money’s worth, and that the challenged provisions served that end. United States v. Butler, 297 U.S. 1, 84–86 (1936).
- 301 U.S. 548 (1937).
- 301 U.S. at 586, 591.
- 301 U.S. at 590. See also Buckley v. Valeo, 424 U.S. 1, 90–92 (1976); Fullilove v. Klutznick, 448 U.S. 448, 473–475 (1980); Pennhurst State School & Hosp. v. Halderman, 451 U.S. 1 (1981).
- In Steward Machine Company v. Davis, it was a taxpayer who complained of the invasion of state sovereignty, and the Court put great emphasis on the fact that the state was a willing partner in the plan of cooperation embodied in the Social Security Act. 301 U.S. 548, 589, 590 (1937).
- 330 U.S. 127 (1947).
- 330 U.S. 127, 143 (1947). This is not to say that Congress may police the effectiveness of its spending only by means of attaching conditions to grants; Congress may also rely on criminal sanctions to penalize graft and corruption that may impede its purposes in spending programs. Sabri v. United States, 541 U.S. 600 (2004).
- Fullilove v. Klutznick, 448 U.S. 448, 474 (1980) (Chief Justice Burger’s opinion for the Court cited five cases to document the assertion: California Bankers Ass’n v. Shultz, 416 U.S. 21 (1974); Lau v. Nichols, 414 U.S. 563 (1974); Oklahoma v. Civil Service Comm’n, 330 U.S. 127 (1947); Helvering v. Davis, 301 U.S. 619 (1937); and Steward Machine Co. v. Davis, 301 U.S. 548 (1937).
- See South Dakota v. Dole, 483 U.S. 203, 207–12 (1987).
- 483 U.S. at 207 (1987). See discussion under Scope of the Power, supra.
- Barnes v. Gorman, 536 U.S. 181, 186 (2002) (holding that neither the Americans With Disabilities Act of 1990 nor section 504 of the Rehabilitation Act of 1973 subjected states to punitive damages in private actions).
- South Dakota v. Dole, 483 U.S. at 207. The requirement appeared in Pennhurst State School & Hosp. v. Halderman, 451 U.S. 1, 17 (1981). See also Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 246 (1985) (Rehabilitation Act does not clearly signal states that participation in programs funded by Act constitutes waiver of immunity from suit in federal court); Gonzaga Univ. v. Doe, 536 U.S. 273 (2002) (no private right of action was created by the Family Educational Rights and Privacy Act); Arlington Central School Dist. Bd. of Educ. v. Murphy, 548 U.S. 291 (2006) (because Individuals with Disabilities Education Act, which was enacted pursuant to the Spending Clause, does not furnish clear notice to states that prevailing parents may recover fees for services rendered by experts in IDEA actions, it does not authorize recovery of such fees).
- South Dakota v. Dole, 483 U.S. at 207–08. See Steward Machine Co. v. Davis, 301 U.S. 548, 590 (1937); Ivanhoe Irrigation Dist. v. McCracken, 357 U.S. 275, 295 (1958).
- The relationship in South Dakota v. Dole, 483 U.S. at 208–09, in which Congress conditioned access to certain highway funds on establishing a 21-years-of-age drinking qualification was that the purpose of both funds and condition was safe interstate travel. The federal interest in Oklahoma v. Civil Service Comm’n, 330 U.S. 127, 143 (1947), as we have noted, was assuring proper administration of federal highway funds.
- South Dakota v. Dole, 483 U.S. at 210–11.
- Steward Machine Co. v. Davis, 301 U.S. 548, 589–90 (1937); South Dakota v. Dole, 483 U.S. 203, 211–12. See North Carolina ex rel. Morrow v. Califano, 445 F. Supp. 532 (E.D.N.C. 1977) (three-judge court), aff’d 435 U.S. 962 (1978).
- South Dakota v. Dole, 483 U.S. at 210 (referring to the Tenth Amendment: “the ‘independent constitutional bar’ limitation on the spending power is not . . . a prohibition on the indirect achievement of objectives which Congress is not empowered to achieve directly”).
- Pub. L. 111–148, as amended.
- 567 U.S. ___, No. 11–393, slip op. (2012).
- Chief Justice Robert’s opinion was joined by Justices Breyer and Kagan on this point, while Justices Scalia, Kennedy, Thomas and Alito made a similar point in a joint dissenting opinion. The authoring Justices of the two opinions, however, did not join in either the reasoning or judgment of the other opinion.
- “When a fragmented Court decides a case and no single rationale explaining the result enjoys the assent of five Justices, the holding of the Court may be viewed as that position taken by those Members who concurred in the judgments on the narrowest grounds.’ ” Marks v. United States, 430 U.S. 188, 193 (1977) (citation omitted). Justice Roberts opinion is arguably narrower than the dissent, because, as discussed below, his opinion found a constitutional violation based on the presence of both a “new” “independent” program and a coercive loss of funds, while the dissenting opinion would have found the coercive loss of funds sufficient. NFIB, 567 U.S. ___, slip op. at 38–42 (Justices Scalia, Kennedy, Thomas and Alito dissenting).
- 567 U.S. ___, slip op. at 50, 53–54. It might be argued that the Roberts’ opinion, with its emphasis on “new” and “independent” programs, is implicitly addressing the “relatedness” inquiry of South Dakota v. Dole. Justice Roberts’ opinion, however, does not explicitly discuss the issue, and an argument can be made that there is a significant difference between the two inquiries. As noted, the “relatedness inquiry” in Dole was identified as a limitation on the Spending Clause, while the NFIB discussion of “new” and “independent programs” emphasized the concerns of the Tenth Amendment. Second, under Dole, the “relatedness” and “coercion” inquiries appear to be disjunctive, in that failure to comply with either of these factors would mean that the statute was unconstitutional. Under NFIB, however, the “new” and “independent” program inquiry and the “coercion” inquiry appear to be conjunctive, so that a grant condition must apparently fail both tests to be found unconstitutional.
- Justice Roberts also noted that Congress created a separate funding provision to cover the costs of providing services to any person made newly eligible by the expansion, and mandated that newly eligible persons would receive a level of coverage that is less comprehensive than the traditional Medicaid benefit package.
- 567 U.S. ___, slip op. at 53.
- 567 U.S. ___, slip op. at 10, 51–52.
- Bell v. New Jersey, 461 U.S. 773 (1983); Bennett v. New Jersey, 470 U.S. 632 (1985); Bennett v. Kentucky Dep’t of Education, 470 U.S. 656 (1985).
- E.g., King v. Smith, 392 U.S. 309 (1968); Rosado v. Wyman, 397 U.S. 397 (1970); Lau v. Nichols, 414 U.S. 563 (1974); Miller v. Youakim, 440 U.S. 125 (1979). Suits may be brought under 42 U.S.C. § 1983, see Maine v. Thiboutot, 448 U.S. 1 (1980), although in some instances the statutory conferral of rights may be too imprecise or vague for judicial enforcement. Compare Suter v. Artist M., 503 U.S. 347 (1992), with Wright v. Roanoke Redevelopment & Housing Auth., 479 U.S. 418 (1987).
- E.g., Title VI of the Civil Rights Act of 1964, 42 U.S.C. § 2000d; Title IX of the Educational Amendments of 1972, 20 U.S.C. § 1681; Title V of the Rehabilitation Act of 1973, 29 U.S.C. § 794.
- Here the principal constraint is the Eleventh Amendment. See, e.g., Board of Trustees of Univ. of Ala. v. Garrett, 531 U.S. 356 (2001) (Americans with Disabilities Act of 1990 exceeds congressional power to enforce the Fourteenth Amendment, and violates the Eleventh Amendment, by subjecting states to suits brought by state employees in federal courts to collect money damages).
- Cincinnati Soap Co. v. United States, 301 U.S. 308 (1937).
- 301 U.S. 619 (1937).
- United States v. Realty Co., 163 U.S. 427 (1896); Pope v. United States, 323 U.S. 1, 9 (1944).
- Cincinnati Soap Co. v. United States, 301 U.S. 308 (1937).
- 6 U.S. (2 Cr.) 358 (1805).
- 6 U.S. at 396.